Chanin Donavanik's Hunger
Leads to Indigestion, Thirst

BANGKOK -- Two years after gobbling up Germany's Kempinski AG hotels, Chanin Donavanik is still suffering from indigestion.

Even so, the soft-spoken executive director of Dusit Thani PCL, Thailand's largest hotel chain, is eagerly looking to put more global properties on his plate, especially in Asia. "What we've done in Thailand, we can do in every country of the world," says Mr. Chanin, whose company has mushroomed from one hotel 10 years ago to 66 properties in 17 countries. "But Asia has the biggest growth in tourism, of course, so Asia is where most of the money can be made."

Although Dusit isn't the only Asian hotel chain to look across national and regional borders in recent years -- CDL Hotels International Ltd., Regal Hotels International Ltd. and Mandarin Oriental International Ltd. are among the growing list with properties overseas -- the Thai chain is one of the most ambitious of the lot. In late 1994, Dusit led a consortium of Thai investors in buying the Kempinski hotel-management company for $165 million. Dusit also owns two hotels in Dallas and is considering further expansion into the U.S. market.

Few doubt that Mr. Chanin and his mother, group founder and chairwoman Khunying Chanut Piyaoui, can make Dusit Thani grow even larger in coming years. The question is whether they can coordinate the acquisitions into a cohesive family, and come up with enough cash to keep the company healthy.

Mr. Chanin admits that, to some extent, the company's growth was unplanned. His mother had run a small hotel in Bangkok for 20 years before opening the city's Dusit Thani hotel in 1970. Dusit acquired its second hotel just 10 years ago from a cousin in Chiang Mai, Mr. Chanin says. A number of later purchases, from Phuket to Dallas, were also suggested by friends or acquaintances. Even Kempinski came up for sale while Dusit was looking to bid on another property. "You could call it good luck, I guess," he laughs.

Heading the Kempinski chain has taught the 39-year-old hotelier some hard lessons about running luxury hotels in Europe. "I didn't know it would be so difficult," sighs Mr. Chanin, who holds a master's degree in business administration from Boston University. He says he wasn't fully prepared to cope with the company's high operating costs and what he sees as the German group's resistance to change. While he didn't want to lose the value of the Kempinski name, Mr. Chanin says the company required a major overhaul. Not only had "some of the management been there too long," he says, but "some leases didn't make sense, the operations weren't all that efficient and the attitude was quite conservative."

Still, he insists that he has a strategy to make the gamble pay off. Mr. Chanin is working to make Kempinski more flexible, more aggressive and "more European than German." He has brought in some new general managers, disbanded Kempinski's management board, and mounted a new sales push in Germany. He is also moving quickly to integrate Kempinski with the Dusit group, by pushing for one corporate identity, joint management and marketing, as well as a central reservations network.

"We want to act more like one body," says Mr. Chanin, adding that the two groups should be largely integrated by late this year. What's more, he says, "once we get our German house in order, hopefully we can expand that [chain] quite fast."

He plans to add eight Kempinski hotels during the next two to three years, bringing the total number to 25. What's more, he hopes to do that by moving beyond Kempinski's traditional hotels, which cater mainly to businessmen, and run golf resorts, beach getaways and luxury properties throughout Eastern Europe.

Some industry observers, though, appear more nervous than excited at his plans. "Normally, analysts like expanding companies," notes Gordon Crosbie-Walsh of Schroders Securities Asia Ltd., who expects Dusit to record a 43% decline in earnings this year to 1.8 baht (seven U.S. cents) per share, from 3.2 baht per share in 1995, reflecting the high cost of financing the group's acquisitions.

But Dusit's appetite for pricey property comes at a time when its hotels at home aren't faring well, he says, which means that "investors pay for the initial growth."

That's fine, according to Neil Semple of HG Asia Investment Research Ltd. in Bangkok, if the investment eventually pays off. Mr. Semple rates Dusit a long-term buy because of what he calls its cheap stock price. Dusit's shares closed at 36.50 baht on Wednesday. While the Kempinski group "almost broke even" in 1994, he states in a recent report, "the debt incurred [by Dusit on the purchase] would make that investment a small net loss-maker in the near term."

Even Mr. Chanin doesn't expect Dusit to perform much better until 1997, when he expects the group's efforts and acquisitions to begin paying off. The group's 1995 net profit of 176.5 million baht (US$7 million) was more than double the 1994 figure, but many analysts say a company with as many hotels as Dusit should be making more money than that. At the same time, Dusit was saddled with long-term loans of 1.79 billion baht.

What's more, Dusit's diverse menu of holdings and reluctance to disclose many details about its properties leaves a number of analysts confused about how to judge its value. As Rob Collins, research director at Asia Equity Thailand Ltd., puts it, "The company has never been very strong at explaining its business to us, and a lot of its hotels are difficult to assess." Another Bangkok-based analyst agrees, adding, "I look at them and I have to say 'I don't know" most of the time."

Dusit fans dismiss critics and echo Mr. Chanin's optimism that the Thai group is well-equipped to become a global player. For one thing, it already has substantial holdings in the Thai market and many appear pleased to see it grazing for opportunities closer to home. In November, Dusit headed to the Philippines to buy a majority stake in the Nikko Manila Garden for $24 million.

It is also looking to take its midmarket Royal Princess PCL chain abroad, possibly through merging with Hong Kong's Century International Hotels. That would provide an alternative brand name to Princess, a name shared by a U.S. hotel company.

While he won't openly comment on negotiations until a deal is struck, Century President Brian Deeson says that he can "confirm that there are discussions taking place." In Mr. Deeson's view, "a strategic alliance makes sense." The chief executive adds, "If you look at the positioning of Century and Royal Princess, you'll see tremendous synergy there."

For Mr. Chanin, meanwhile, the challenge is to find synergy between his expanding crop of hotels. One problem is managing the various types of hotels, from the Thani Hotels & Resorts franchise, which allows outside operators to capitalize on the group's name and marketing strength, to its cheaper Royal Princess brand, to Dusit's more upscale properties.

Mr. Chanin admits that drawing a distinction between the high-end chains of Dusit and Kempinski may pose an even larger challenge. For one thing, Kempinski already has a presence in Asia, with hotels in Bangkok, Beijing, Bombay and Hong Kong. Even so, he concludes that the formula is bound to evolve." Sometimes, I don't know the right answer," he says. "We're partly learning as we go through this process."